Dynamic consistency and reference points

Article Abstract:

A manipulation, called Dutch book, of expected utility theory is presented. There is a notion that if decision makers have preferences that violate the independence axiom, they can be made to accept a sequence of trades that put them in a position which is stochastically dominated by their initial position. Conditions are offered to show that as uncertainty unfolds, the preferences must converge to expected utility. It is also maintained that as uncertainty unfolds, preferences evolve so that the indifference curve through the planned choice at each choice node.

Utility theory, Utility functions

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Efficient incentive compatible economies are perfectly competitive

Article Abstract:

An analysis of the general equilibrium concept of perfect competition shows that it is the only method for ensuring efficiency without externalities. In this examination, continuous, efficient and anonymous mechanism is described as being incentive compatible, perfectly competitive and allows no externalities, which means that any action by individuals cannot affect the welfare of others. Such a characterization holds regardless of the ordinal or quasilinear nature of preferences and also applies to continuum economies.

Econometrics & Model Building, Econometrics, Externalities (Economics), Equilibrium (Economics), Business models

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Constant risk aversion

Article Abstract:

A number of representation theorems concerning constant risk aversion were developed in an effort to extend its use to specific functional forms. These theorems dwell on the concept that adding or multiplying a positive number to all possible outcomes would create negligible effect on the preference relation between outcomes. Using these theorems, it was found that constant risk aversion functionals may not be approximated since they are not Frechet differentiable.

Risk (Economics), Economic research, Consumer preferences

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